1. This problem has you examine the losses on different mortgage contracts under the following scenario. Each mortgage was for $100,000 and has an interest rate of 5%. Each mortgage was originated 2 years earlier. It now defaults, i.e., the second annual payment is not made, and the lender is able to recover 75% of the value of the house after expenses.

   Compute the banks dollar loss in each case. Assume house prices have not changed since the mortgages were issued.

   1. Mortgage A is a conventional mortgage with a 20% down payment. Annual mortgage payments are $10,000.

   2. Mortgage B is an interest-only mortgage with a 20% down payment. Annual mortgage payments are $5,000.

   3. Mortgage C is an amortized mortgage that only required a 5% down payment. Annual mortgages payments are $10,000.